October 2, 2009

IBM Challenges Google With Cheaper Corporate E-mail

Google's expansion into the business software market is being thwarted by IBM, which is undercutting Google's software applications with a new bare-bones e-mail service, The Associated Press reported.

IBM's service is selling to companies for $36 annually per worker, which is cheaper than Google's more comprehensive package of software applications that sells for $50 per user annually.

However, Google is offering 25 times more storage -- 25 gigabytes per account compared to IBM's 1 gigabyte per mailbox -- for that price difference. Google's service also contains word processing, spreadsheet and presentation applications, as well as a video channel.

And while IBM can't match all of those offerings, it believes its service, called LotusLive iNotes, can beat Google because it has a much larger sales force and relationships with corporate customers going back to the early 1970's.

Gartner Inc. analyst Matthew Cain called that trouble for Google.

IBM is seeking to answer the increasing corporate demand for cheap e-mail that's run on computers owned by an external supplier instead of the company relying on the service "“ an approach known as "cloud computing."

Meanwhile, Google has emerged as a cloud computing pioneer as it attempts to generate more revenue from sources besides its dominant Internet search engine. And companies looking for ways to save money have been exploring Google's sales pitch.

Similar discount services have also been occurring with other e-mail providers and Gartner predicts about 20 percent of U.S. companies will run at least some of their e-mail through Web browsers by 2012.

Google claims its corporate users now number in the hundreds of thousands, while some companies, including Fairchild Semiconductor International Inc., switched from IBM's premium e-mail service that costs substantially more than Web-based e-mail.

IBM believes the timing for its e-mail alternative is ideal, since Google's service suffered a highly publicized outage that locked out corporate customers for nearly two hours in September.

Sean Poulley, an IBM executive overseeing the company's e-mail service, said Google has shown itself to be weak in some areas of e-mail.

"There is a world of difference between supporting a consumer-grade service and a business-grade service," he added.

But Google will learn the ins and outs of selling software to businesses more quickly than IBM will adapt to cloud computing, according to Dave Girouard, who oversees Google's e-mail and other services tailored for companies.

He said Google isn't planning to lower its prices.

IBM and other rivals, such as Microsoft Corp., stand to make more money selling more sophisticated e-mail services and software applications that are installed in the computers maintained by the customers.

For example, IBM runs the risk of making less money if most of its customers switch to the newer approach, with e-mail hosted off their premises.

But IBM has narrowed the field of businesses likely to buy the service by keeping the storage limits relatively low and skimping on other e-mail features. IBM expects the customers to include small and medium-sized businesses, or larger companies whose employees who aren't tethered to an office desk.

A spokesman for IBM said on Thursday that the company would start selling its LotusLive iNotes next week.